Question

IKEA’s Global Strategy Walk into an IKEA store anywhere in the world, and you would recognize it instantly. Global strategy standardization is rampant! The warehouse-type stores all sell the same broad range of affordable home furnishings, kitchens, accessories, and food. Most of the products are instantly recognizable as IKEA merchandise, with their clean yet tasteful lines and functional design. With a heritage from Sweden (IKEA was founded in 1943 as a mail-order company, and the first store opened in Sweden in 1958), the outside of the store will be wrapped in the blue and yellow colors of the Swedish flag. IKEA has sales of €34.2 billion euros annually (about $37 billion U.S. dollars) and more than 150,000 employees. Interestingly, IKEA is responsible for about 1 percent of the world’s commercial-product wood consumption.

The IKEA name comes from its founder—the acronym consists of the founder’s initials from his first and last names (Ingvar Kamprad) along with the first initials of the farm where he grew up (Elmtaryd) and his hometown in Sweden (Agunnaryd). Overall, Sweden has 20 IKEA stores, which are only fewer than in Germany (49 IKEA stores), the United States (42), France (32), and Italy (21). Spain also has 20 stores. With 351 stores in 46 countries, IKEA is the largest furniture retailer in the world. Basically, the furniture market is one of the least global markets, with local tastes, needs, and interests much different than for many other products across industries. The largest IKEA store is in Gwangmyeong, South Korea, at some 640,000 square feet.

The IKEA store itself will be laid out like a maze that requires customers to walk through every department before they reach the checkout stations. The stores are often structured as a one-way layout, leading customers counterclockwise along what IKEA calls “the long natural way.” This “way” is designed to encourage customers to see the store in its entirety. Cut-off points and shortcuts exist but are not easy to figure out. It is even difficult to get back out after having a meal in the famous IKEA restaurant with its Swedish food (meatballs anyone?).

Immediately before the checkout, there is an in-store warehouse where customers can pick up the items they purchased. The furniture is all packed flat for ease of transportation and requires assembly by the customer. Value is stressed to a great extent (the price customers pay for the quality furniture they get). If you look at customers in the store, you will see that many of them are in there 20s and 30s. IKEA sells to the same basic customers worldwide: young, upwardly mobile people who are looking for tasteful yet inexpensive “disposable” furniture of a certain quality standard for the price they are willing to pay.

A global network of more than 1,000 suppliers based in more than 50 countries manufactures most of the 12,000 or so products that IKEA sells. IKEA itself focuses on the design of products and works closely with suppliers to bring down manufacturing costs. Developing a new product line can be a painstaking process that takes years. IKEA’s designers will develop a prototype design (e.g., a small couch), look at the price that rivals charge for a similar piece, and then work with suppliers to figure out a way to cut prices by 40 percent without compromising on quality. IKEA also manufactures about 10 percent of what it sells in-house and uses the knowledge gained to help its suppliers improve their productivity, thereby lowering costs across the entire supply chain.

Look a little closer, however, and you will see subtle differences among the IKEA offerings in North America, Europe, and China. In North America, sizes are different to reflect the American demand for bigger beds, furnishings, and kitchenware. This adaptation to local tastes and preferences was the result of a painful learning experience for IKEA. When the company first entered the United States in the late 1980s, it thought that consumers would flock to its stores the same way that they had in western Europe. At first, they did, but they didn’t buy as much, and sales fell short of expectations. IKEA discovered that its Europeanstyle sofas were not big enough, wardrobe drawers were not deep enough, glasses were too small, and kitchens didn’t fit U.S. appliances. So the company set about redesigning its offerings to better match American tastes and was rewarded with accelerating sales growth.

Lesson learned. When IKEA entered China in the 2000s, it made adaptations to the local market. The store layout reflects the layout of many Chinese apartments, where most people live, and because many Chinese apartments have balconies, IKEA’s Chinese stores include a balcony section. IKEA has also had to shift its locations in China, where car ownership lags behind that in Europe and North America. In the West, IKEA stores are located in suburban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers a delivery service so that Chinese customers can get their purchases home.

4. Debate the relative merits of fixed and floating exchange rate regimes. From the perspective of IKEA, critically appraise the most important criteria in a choice between the systems. (1000 words)

Answer 1

The instance for fixed exchange rates lays on contention about monetary control, hypothesis, uncertainly, and the absence of association between the trade balance and exchange rates. As far as monetary control, the need to keep up fixed exchange rate equality guarantees that legislatures wear not to grow their cash supplies at inflationary rates. As far as theory, a fixed exchange rate system blocks the chance of hypothesis. As far as vulnerability, a fixed rate system presents a level of assurance in the global monetary framework by diminishing unpredictability in exchange rates. At long last, as far as trade balance modifications, pundits question the closeness of the connection between the exchange rate and the trade balance. The case for floating exchange rates has two primary components: monetary policy self-governance and programmed trade balance alteration. As far as the previous, it is contended that a floating exchange rate system gives nations monetary policy independence. Under a fixed rate framework, a nation's capacity to grow or get its monetary supply as it sees fit is constrained by the need to keep up exchange rodent equality. As far as the later, under the Bretton Woods framework, if a nation built up a perpetual shortage in its balance of trade that couldn't be rectified by residential policy, the IMF would consent to a money downgrading. Pundits of this framework contend that the alteration instrument works considerably more easily under a floating exchange rate system. They contend that if a nation is running a trade shortage, the imbalance between the supply and demand of that nation's money in the remote exchange markets will prompt devaluation in its exchange rate. An exchange rate devaluation should address the trade shortage by making the nation's fares less expensive and its imports costly. It involves a genuine belief for which framework is better for worldwide business. We do know, in any case, that a fixed exchange rate system demonstrated along the lines of the Bretton Woods framework will to work. All things considered, an alternate sort of fixed exchange rate framework may be all the more suffering and may encourage the sort of soundness that would encourage progressively quick development in universal trade and venture.